ISIL's soft economic underbelly

ISIL's soft economic underbelly

Syed Mansur Hashim

THERE is no end to the “hype” around the military successes by the Islamic State of Iraq and Levant (ISIL). The less spoken topic of course is now that ISIL controls substantial landmass in Iraq, precisely how it intends to run it economically? While landmass can be calculated, it is much more difficult to ascertain precisely what percentage of the populace lives under its control. The last national census in Iraq was conducted in 1987, i.e. nearly 20 years ago. However, it is estimated that anywhere up to 35% of Iraq's people now live under ISIL control which comes to around 10-13 million people. While ISIL controls up to 40% of Iraq's landmass, it control barely 11% of gas and oil reserves and since its takeover there have been no exports of oil. That is because these reserves are underexploited. It will require massive amounts of external investment and time to fully develop the potential oil fields. Given the current fluid situation on the ground, it is highly unlikely that such a situation will come to pass anytime soon.

According to what has been published in Western media, dams, one in Mosul and the other on the banks of the Euphrates River are in trouble. Hydroelectricity produced by these dams is significantly reduced due to a myriad of factors. The Mosul dam was faulty in design and apparently still stands due to daily infusions of cement. The Haditha dam on the banks of the Euphrates River suffers from reduced water flow. The end result of reduced production of electricity is that refrigerators and air conditioners do not run as needed and that opens up the possibility of a looming public health crisis in a widespread area that sees the mercury hitting temperatures up to 40 degrees Celsius.

One can contend that given the fact that agriculture is a major activity in the area controlled by ISIL, decreasing agriculture production can only ferment resentment. Again, going by what has been reported in international media, we find that unemployment in the agriculture sector in ISIL-territory ranges anywhere between 30-40% against a national average of about 18%. One cannot forget that economic hardship, particularly repeated crop failures and mismanagement of resource allocation including irrigation, was a major catalyst for rural migration to the cities in Syria just prior to the civil war. It was a pivotal factor in the Syrian civil war where city utility services and economy failed to cater to a booming population fuelling resentment against the regime.

There are other factors at play in Iraq that dictate the irrigation scenario in these areas. Control over Euphrates River lies beyond ISIL. It originates in Turkey and flows through Syria before coming to Iraq. Both these countries have actively diverted water resources for their own needs and with ISIL at odds with Turkey, it is impossible to predict how much more “diversification” or obstruction of natural water flow will take place in the future. A significant portion of the civilian populace in ISIL-controlled territory was already dependent on government food aid. It now remains to be seen whether the new rulers will be able to sustain this primarily import-based programme. While we have read and heard a lot about the huge stash of cash that ISIL has gotten its hands on from the banking system, anywhere up to US$1billion, that is not much cash. It isn't much when one takes into account the payroll of government employees and retired persons' pensions that have to be paid. And it is not just salaries to the bureaucracy, but the fighters have to be paid too.

Fighting a war is one thing. Running an economy is quite another. Revenues are needed to meet expenditures. In a constantly changing scenario where ISIL forces are fighting on two fronts, one against government forces in Baghdad and the other against the Kurds and now with the added dimension of US air strikes, arsenals need to be constantly replenished. Despite having acquired significant military hardware from the retreating Iraqi army, these pieces of equipment will require maintenance and they will require ammunition. All these require cash. The much-vaunted $1billion will evaporate in no time. Whilst ISIL may get military and financial aid from its international backers, the economy is in a mess.

The bulk of its existing cash roll now includes selling oil from existing oil fields to middlemen in an international “grey market”, donations, hostage taking and ransom, extortion of existing business and minority communities for a “right to stay”. Unfortunately, that will not be enough. Without employment opportunities or social welfare programmes to fall back upon, today's relatively restive civilian populace may turn resentful in the very near future. Unless, the new rulers can find the expertise and funds to develop the underdeveloped but substantial mineral resources including gas and oil fields to pay for the import of essentials, and manage to work out a workable water sharing treaty with its neighbours, ISIL may soon find itself between a rock and a hard place.